Tax free incentive for commercialization

The Ontario government has found some fiscal room for new and continuing S&T and commercialization initiatives in its March 25 Budget, including a new tax holiday for companies created from intellectual property (IP) developed at Canadian universities, colleges and research institutes. The Ontario Tax Exemption for Commercialization (OTEC) is being billed as a North American first and helps to move the province into the forefront of commercialization policy.

The Budget largely brushed aside criticism leveled by federal Finance minister Jim Flaherty and his call for cuts in the provincial corporate tax rate, although the Budget papers and Finance minister Dwight Duncan's Budget speech directed more than a few barbs and challenges towards Ottawa. The Budget calls for a FY07-08 surplus of $600 million and projects FY08-09 spending of $96.2 billion with major allocations going towards education and job retraining, especially in the beleaguered manufacturing sector.

The Budget's S&T initiatives call for nearly $300 million in new funding, which pushes Ontario's seven-year commitment to S&T to $2.8 billion beginning in 2005. The largest single item is the Ontario Research Fund (ORF), which received $250 million over the next five years. Essentially the provincial match for Canada Foundation for Innovation (CFI) funding, the top-up will help Ontario researchers compete for funding under the CFI's 2009 Leading Edge and New Initiative Competition which issued a call for proposals last month.

"The $250 million for the ORF is on top of $527 million we've already committed," says John Wilkinson, minister of Research and Innovation (MRI). "We're talking to researchers about their areas of focus and asking that they come to see us before applying to the CFI. We're working with the research community."

strategic investments

The Budget also contains $42.5 million in strategic S&T funding including support for specific high-tech sectors. That includes $19 million for digital media, including the creation of a campus of the Univ of Waterloo in Stratford focused on mobile, wireless, sound, video, gaming, web design and animation. The Stratford campus will receive $10 million while the Ontario College of Art and Design in Toronto will receive $9 million. Open Text Corp is involved in the formation of the Stratford campus with details to follow.

The Univ of Western Ontario received $7.5 million to support interdisciplinary research into biofuels, combining chemicals and fuels derived from agricultural resources.

The Innovation Demonstration Fund has also been expanded with a $6-million infusion, bringing the fund's total to $30 million.

tax holiday for commercialization

The new OTEC program exempts qualifying corporations from paying Ontario Corporate Income Tax and Corporate Minimum Tax for 10 years. Companies must be formed between March 24/08 and March 25/12 and the exemption applies to firms commercializing IP in the areas of the bio-economy/clean technologies, advanced health technologies, telecommunications and digital and computer technologies. Eligible activities include prototype development and the marketing and manufacturing of products related to the IP. The Budget calls for the federal government to match the tax exemption.

"This is a North American first. It sends a clear signal that we want companies that enhance their IP in Ontario," says Wilkinson, adding that it complements the Strategic Opportunities Program (SOP) created within the $1.15-billion Next Generation Jobs Fund (NGJF).

Under the SOP, industry-led collaborations of firms, researchers, universities and not-for-profit organizations can apply for funding if they're focused on the same areas targeted by OTEC. The biopharmaceutical sector was the first to tap into the NGJF which was modeled on the Ontario Automotive Strategy (R$, January 21/08). The province is committing to a 45-day turnaround to all applications.

"We work with the applicants," says Wilkinson. "The pace of government is often too slow compared to the pace of business."

The Budget also includes enhancements to the refundable Ontario Innovation Tax Credit, which provides a 10% tax credit for qualifying scientific research and experimental development. The credit will be extended to conform to similar changes made in the federal SR&ED tax credit program (R$, March 11/08). These include raising the qualifying expenditure limit from $2 million to $3 million and extending the phase-out range of taxable income to $700,000. The Budget documents point out that the Ontario credit is more inclusive than its federal counterpart as it is not restricted to Canadian-controlled private corporations. It also has a more generous taxable capital phase-out range — $25 million to 50 million as opposed to $10 million to 50 million.

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